sustainable foundation because just as china has benefited from substantial investment and profitable exports, china can also be an enormous market for american goods. >> paul: with that, president obama kicked off two-days of strategic economic talks with the chinese. he says our relationship will shape the 21st century. >> suzanne: up, up and away. the dow has tacked on almost 40% since march. but with the economy still in recession, many on wall street are wondering if stocks have gone too far too fast. >> paul: from the failure of lehman brothers to the demise of bear stearns. congress wants to know how, and why, the financial crisis happened. we talk to a member of the new financial crisis inquiry commission, former u.s. senator bob graham. >> suzanne: then, verizon dials up weak results. the telecom giant posts a big drop in profits. and ramps up layoffs, now cutting 8,000 jobs this year. >> paul: i'm paul kangas. >> suzanne: and i'm suzanne pratt. susie gharib is off tonight. this is "nightly business report" for monday, july 27th.

"nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you.

>> suzanne: good evening everyone. cooperation, not confrontation. that's how president obama sees the future of u.s., china relations. the president spoke as the two countries began two days of talks on economic and security issues. both nations are upbeat about global growth, pointing to signs the world is moving toward recovery. as darren gersh reports, the question is how to keep the world's largest economies headed in the same direction. >> reporter: it was chinese state councilor dai binguo who summed up the self-interest that brings the u.s. and china together in massive meetings like this. >> ( translated ): we are in the same big boat, that has been hit by fierce wind and huge waves. >> reporter: as massive economies, both countries are critical to the emerging global recovery, and both countries also have common interests and problems. to see why, all you have to do is walk across the street from this meeting to the u.s.

treasury. the u.s. government is selling a record $115 billion in debt this week. the chinese, of course, are the biggest holders of that debt, their stake topping more than $800 billion. economist uri dadush says that means china doesn't want to see either too much inflation or too little growth in the u.s. >> so look at china as now being a significant stakeholder in how the u.s. economy performs. >> reporter: the u.s. too has a proprietary interest in china, which is on its way to becoming the largest economy in the world, and is already one of the largest markets for u.s. exports. most recent figures show the u.s. trade deficit with china down 18%. with china shifting from export- led growth to growth at home, treasury secretary timothy geithner wants to see the trend continue. >> china's success in shifting structure of economy will be huge contribution to bringing about more rapid global recovery

>> reporter: but china has fueled the shift with large increases in bank lending, a trend that worries some observers, says the u.s. china business council's john frisbie. >> so the u.s. will have its own questions about china's exit strategy from that to avoid inflation down the road, just as china is going to be talking about our own exit strategy to avoid inflation here down the road. >> reporter: this meeting is billed as a dialogue and it is high level: by including secretary of state hillary clinton, the obama team is signaling the breadth of issues china and the u.s. face. but the very size of the meeting and the size of the two nations underscores the difficulty of making quick changes. >> this makes it very important that this dialogue continues and that the united states be in a position to nudge china in the right direction as it emerges as the leading economic power of the 21st century. >> reporter: one issue where progress is slow, but the need increasingly urgent is climate

change. the two countries have deep economic differences there that may be harder to resolve than the usual disagreements over currencies and trade. darren gersh, "nightly business report", washington. >> suzanne: today marks the third straight up day for the dow with a modest 15-point gain. but the blue chip average has been on a tear surging about 40% since its march low, while the s&p 500 is up 45% in the same time frame. as scott gurvey reports, those gains are starting to make some investors quite nervous. >> reporter: is it the real thing or just a head fake. what the doubters call a suckers rally? that is the big money question facing investors watching a market which exploded on the upside in july. stephen wood of russell investments says he hasn't seen a major economic change. but he has seen a big swing in market psychology. >> about a year and a half ago, end of two thousand and seven, you had a market priced for absolute perfection. coming into the first quarter of two thousand nine you had a market priced for armageddon. what's you've seen is a reversion to something in between.

and i think it's an expectations game now in that its not nearly as bad as feared. estimates have come down and expectations are so low that companies are beginning to beat. >> reporter: analysts say many professional money managers, afraid of being left behind, have fueled the rebound. mike ryan of ubs wealth management says there's a lot of cash available to sustain the rally, at least in the near term. >> on the margin we're starting to see that the news has become incrementally better. you're seeing less concerns about system wide failure and more issues about how quickly this recovery will gain traction and where will it gain its footing first. so to me i think the conversation has started to shift now away from the depth of the recession and now towards how robust this recovery process will be. >> reporter: many economists are looking for the u.s. to exit recession by the fourth quarter with europe following next year. but for the market rally to be sustained, the experts say there must be evidence the recovery can be sustained without life support from the government.

and consumers must break out their wallets again, so corporate profits can come from sales, rather than cost cuts. >> i think going into 2010 we're going to go from expectations, cost cutting situation, into those firms that are strategically positioned, strong balance sheets, great cash position, they don't have a lot of debt and they can take market share away from their competitors and actually drive sales. so i think going forward its probably going to be a little tougher because its been a relief rally since march. >> reporter: the experts warn there are still major risks to the system. and it would only take a few bad earnings reports to bring the market rally to a screeching halt. scott gurvey, "nightly business report", new york. >> paul: a bigger than expected jump in new home sales didn't put wall street in rally mode this morning. instead investors focused on guarded outlooks from aetna and honeywell. by 11:00 a.m. the dow was off 45 points and the nasdaq down 15. the modest selloff continued as the market consolidated its recent gains. but light volume and positive breadth attracted late buying and the markets had a slightly

higher close. >> paul: last night federal reserve chairman ben bernanke went where no fed chief has gone before. straight to the people. it came in a town hall meeting in kansas city hosted by the pbs program "the newshour with jim lehrer". bernanke took questions on everything from the fed's

handling of the financial crisis to exactly what his agency does. and some of the questions were blunt. a small business owner asked why the fed rescued big banks while short-changing small companies? bernanke responded saying he too was disgusted by the bailouts. >> let me just emphasize that nothing made me more frustrated, more angry, than having to intervene, particularly in a couple of cases where taking wild bets forced these companies close to bankruptcy. there's nothing that made me angrier than having to do that. why did we do it? because if that company had collapsed in the middle of a crisis it could have brought everything down. >> paul: you can see more of bernanke's comments on the newshour on pbs tonight, tomorrow night, and wednesday night. also, the fed is taking a closer look at how the financial crisis is affecting americans. it's doing a new survey of consumer finances. the last one was done two years ago just as the mortgage crisis was bubbling to the surface. >> suzanne: the fed is not the only one looking into the

financial crisis. congress has also set up a financial crisis inquiry commission to investigate the root causes. former senator and florida governor bob graham is one of its ten members and he joins me now. senator, welcome to the program. >> thank you very much, suzanne. i appreciate joining you in my home town with my friend paul. >> suzanne: nice to have you here. let me start with just an explainer. the commission has been set up to examine many different areas of the financial crises. now, do you view this as a fact finding mission or will there actually be recommendations that come out of it. >> both. we are directed by the congress to do a thorough examination of the causes of the current financial crises much like the ficora commission did in the 1930's and then to make recommendationses as ficora which lead to the securities and

exchange question. >> suzanne: that's my next question. a lot of people are drawing parallels between this commission and the ficora commission and out of that came some very significant financial reform. now do you think it's fair to draw those kind of parallels, is that the right thing to do. >> it's certainly a challenging standard for our commission because the pikora commission which was actually a committee of the united states senate did such an outstanding job of analysis and then prescription. we are going into this, ten members, republicans and democrats with the goal of having a report, which will do a thorough analysis of what has happened because the american people have been severely damaged by the experience of the last year. and what can we contribute to avoiding a repetition. >> suzanne: now, by the time your commission makes its rulings or gives its report, it will be the end of next year, if

i'm not mistaken, correct, the end of 2010. >> december of 2010 is our final date to report. >> suzanne: correct. do you believe it's going to by then already be business as usual on wall street? i mean, isn't it going to be sort of a bit late to be making these recommendations? >> no. we don't want to be a commission that delays the process of dealing with current problems. we look forward to assisting the congress and the treasury and the whitehouse as they collectively make decisions. what we want to do is build a record of what has happened to the american economy and then make recommendations in addition to those that may have already been put into place to avoid repetition. >> suzanne: it may be confusing i think to some of our viewers to be examining the system that failed while at the same time we're currently trying

to rewrite the rules. how do you see those two processes working sort of side by side. >> i think it's a little bit like a position. the first thing the position tries to do is listen to your comments, test -- take laboratory samples and then diagnose what your problem is. once that's determined, then you move to the question of recommendation. so our job is going to be to look at what has happened, to build a historical record, to try to understand what that record says in terms of the future and make recommendations as the pikora commission did that has served the nation very very well. >> suzanne: i would be remiss if i didn't ask you what types of reforms that you would like to see see come out of the financial crises we've all been living through in the last few years. >> i will answer your question but i will say i hope all the members going into this process with as much of an open mind as

possible because it's going to be very important that we reach a consensus if the recommendations of the commission are going to be helpful. i would say one thing. i'm interested in looking at is there were some countries which avoided this crises, countries like australia and new zealand and to a large extent canada. what did they do that we and much of western europe didn't do, which contributed to our problem and their having gotten through this situation relatively unscathed. >> suzanne: senator we have to leave it there. good luck with your endeavor. >> thank you very much. >> suzanne: my guest this evening former senator bob graham.

>> suzanne: cash for clunkers roared to life today with lots of americans hoping uncle sam will put them in the drivers seat. the government program gives buyers up to $4,500 to trade their old models for more fuel efficient cars and trucks. buyers are already flooding showrooms and almost 16,000 dealers want to take part. the program's website cars.gov has also been busy with a million and a half hits so far. cash for clunkers ends november 1st or whenever the billion dollars set aside to cover the program runs out. paul? >> paul: suzanne, congress hasn't ruled out giving the green light to another auto rebate down the road. let's take a look at our stocks in the news tonight.

and those are the stocks in the news tonight, suzanne. >> suzanne: paul, thursday marks medicare's 44th birthday. as the nation tackles health care reform, many have suggested using medicare as a cost-saving model. so this week, we're looking at the program, the progress it's made, and the challenges it still faces. first, here's a quick course on the basics of medicare. medicare is the federal health insurance program for people 65 and older. the program covers about 45 million americans including people younger than 65 with permanent disabilities. medicare was originally set up to provide hospital and medical insurance.

but no prescription drug coverage. today, the program has four parts. parts "a" and "b" are medicare's hospital and medical insurance. part "c" is the medicare advantage program. an option letting people sign up for private health insurance plans that provide medicare benefits. part "d" is the voluntary prescription drug benefit signed into law in 2003. this year, medicare costs are expected to total almost half a trillion dollars or about 13% of the federal budget. even if you're not on medicare there's a good chance you're paying for it. 41% of its funding comes from payroll taxes. that money is put into a trust fund that pays for benefits. but medicare spending now exceeds revenues. and the trust fund is projected to dry up in eight years. the medicare math won't get easier. the number of people on medicare is expected to balloon to 79 million by 2030, as baby boomers age.

tomorrow, we'll talk health care reform with medicare's former administrator, doctor mark mcclellan. >> paul: also tomorrow, fighting foreclosures. the nation's big mortgage firms head to the white house for a pow-wow on loan modifications. >> suzanne: say goodbye to naked short selling forever. the sec today made permanent a temporary rule banning the practice. short selling is where investors bet against a stock, borrowing shares to sell, then buying them when the price falls. naked short sellers never borrow the shares in the first place. the temporary ban was put in place last fall at the height of the stock market's turmoil. >> paul: say hello to a new head of british bank lloyd's. he's win bischoff former chairman of citigroup. bischoff has a challenge ahead of him. lloyd's banking group lost billions of pounds on risky loans that forced the british government to step in with a huge rescue package. bischoff takes over on september 15.

>> suzanne: here's a look at what's happening tomorrow.

tonight's commentator says when it comes to healthcare reform has to be done right. he's mark zandi chief economist at moody's economy.com. >> health care reform if done right will be a boon to our economy. if done wrong, reform will be an economic albatross. the right kind of health care reform must do two things. first, it must be credibly paid for. insuring the uninsured is very important, but this will be expensive and it can not be covered by simply wringing out cost savings elsewhere in the health care system. there just aren't enough savings to be had year in and year out. second, health care reform must lower the growth in future health care costs. this is critical to reining in long-term deficits. far and away the most significant reason why the government's debt load threatens to balloon out of control is that health care costs are growing twice as fast as overall inflation. the best way to accomplish both things is to scale back the tax

exclusion on employer provided health care insurance for those with very expensive health care plans. this will raise lots of money to pay for the uninsured and it will also force higher income households to more carefully shop for their care. with circumspect shoppers, health care providers will be forced to be more judicious in their pricing. unfortunately this isn't the direction policymakers seem headed. other potential solutions being debated either rely on accounting gimmickry to pay for the uninsured and/or do nothing about slowing the growth in long-term health care costs. unless the debate soon changes, this is a reform not worth doing. this is mark zandi. >> paul: recapping today's market action stocks turn positive late in the day. the dow gains 15 points. and the nasdaq adds almost two points. to learn more about the stories in tonight's broadcast, to watch our streaming video and to take part in our daily blog, go to "nightly business report" on pbs.org. you can also email us at nbr at pbs.org.

>> suzanne: that's "nightly business report" for monday, july 27. i'm suzanne pratt goodnight, everyone. and good night to you too, paul. >> paul: and you as well, suzanne. i'm paul kangas wishing all of you the best of good buys. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org